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New Ericsson CEO Per Narvinger wasted no time making changes to his executive team and ailing enterprise business as the vendor braces for impact from high component costs and navigates a flat mobile market with few signs of long-term growth.
Making his CEO debut on the company's third quarter earnings call, Narvinger said he remains "realistic" about the market. "The RAN market is broadly flat and component costs are increasing in the wake of the AI boom," he said.
The company said it has been able to offset the rising cost of components through "tactical actions," such as upselling and substituting products. But it will need to take more "structural" actions. These include raising prices, which the vendor has already started, as well as other measures across portfolio, supply chain and efficiency improvements.
"We will not be immune to higher component costs, but protecting the value of our technology and the profitability of our mobile networks business remains our top priority," he said, noting that the company is also "maintaining cost discipline" and prioritizing needed investments.
Related:Ericsson kicks off Vonage revival plan after years of losses
Ericsson reported revenue growth of 6% to SEK 59.5 billion (US$5.9 billion) in the third quarter, driven by 9% sales growth in networks and 3% sales growth in cloud software and services, its two largest segments. In the enterprise segment, sales declined by 10%.
In networks, adjusted gross margin was stable year-over-year at 50.3%, while adjusted earnings before interest, taxes and amortization (EBITA) margin was up from 20.3% to 23.1%, which was attributed to "high sales and good cost control."
The market liked the Q3 performance as Ericsson's share price leapt nearly 10% higher in trading this morning.
Reworking wireless enterprise
One of Narvinger's first moves as CEO is to dissolve the unit that houses enterprise wireless solutions and disperse the products to other parts of the company.
The change means that neutral host and private 5G will be moved into the networks division, joining the Swedish vendor's traditional radio access networks (RAN) products. Wireless WAN solutions – which are the Cradlepoint assets Ericsson acquired in 2020 for $1.1 billion – will remain a standalone business led by Yossi Cohen, head of market area Americas with financial results continuing to be in the enterprise segment.
Current head of enterprise wireless solutions Åsa Tamsons will support the portfolio integration before leaving the company at the end of this year.
"The changes make sure we have stronger synergies on the R&D side ... and that we can continue on the growth path we've seen lately and come closer to the customers," Jenny Lindqvist, Ericsson's head of cloud software and services, told Light Reading. Cradlepoint's fit with Cohen's leadership reflects where it has strong customer relationships, for example.
Related:Ericsson, the best a RAN can get, still lacks a growth story
The new structure puts a more glaring light on Vonage, or the "global communications platform," in Ericsson's Enterprise segment, which is the part of the company that Narvinger flagged where it has "more work to do," during the third quarter investor call today.
He hinted there could be more changes ahead for the enterprise business as the new head of global communications platform and CEO of Vonage, Christophe Van de Weyer, is tasked with the turnaround.
"[He has] the target not just to grow the business, but we have also been very clear that we need to look on the cost side of the Vonage business. It is absolutely my experience in this company that we rarely succeed by just having growth. We also need to look at the cost side ... It is absolutely a priority to get to black numbers quicker on the enterprise segment," he said.
Smaller exec team
In another organizational change starting next year, Ericsson is combining its two smallest regional divisions into one and letting go the respective executives.
Related:Ericsson warns of price rises to counter high component costs
Ericsson has a market area for Northeast Asia and a separate one for Southeast Asia, Oceania and India. These will be combined into a new area for Asia-Pacific (APAC).
Patrick Johansson, who is currently head of Europe, Middle East and Africa, will lead the new APAC group. The company will be recruiting for his replacement.
With these changes, two regional executives will be leaving at the end of this year: Chafic Nassif, head of Northeast Asia; and Andres Vicente, head of Southeast Asia, Oceania and India.
With a "leaner executive team," Narvinger said, "we can be faster and more agile in a very dynamic environment that we operate in."
The outlook on that environment, shared by Chief Financial Officer Lars Sandström, sounded sobering, if not a like warning. "Global uncertainty remains elevated, given the broad geopolitical and macroeconomic environment, including the global semiconductor situation. We are not immune. The industry is entering a period of higher input costs, and the financial impact will continue to build up in the coming quarters," he said.
He reiterated that while short-term steps have been working well, the company is planning longer-term structural actions to offset rising component costs.
About the Author
Senior Editor, Light Reading
Michelle Donegan covers all things 5G, 6G and mobile tech for Light Reading. She has been writing about the telecoms sector since the early 1990s.
Her first job was with Global Telephony magazine in Chicago, where she got an intro to publishing and tech reporting. After moving to the UK in 1999, she has covered telecoms tech, business and policy issues at publications including Communications Week International and Total Telecom. She was also part of Light Reading’s European editorial team from 2007 to 2013. Between stints at Light Reading, she was busy freelancing and was a regular contributor to Mobile Europe, Mobile World Live, TelcoTitans, TM Forum, and more.